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December 2, 09

NEWS / Fort Lauderdale Attorney Charged in Billion-Dollar Ponzi Scheme

MIAMI—Jeffrey H. Sloman, Acting United States Attorney for the Southern District of Florida; John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation, Miami Office; and Daniel W. Auer, Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division, announced the filing of a five-count Criminal Information charging attorney Scott Rothstein, 47, of Fort Lauderdale, Fla., with one count of conspiracy to violate the Racketeering Influenced Corrupt Organization (RICO) statute; one count of conspiracy to commit money laundering; one count of conspiracy to commit mail fraud and wire fraud; and two counts of wire fraud. In addition, the information seeks the forfeiture of $1.2 billion, including 24 pieces of real property, numerous luxury cars, boats, and other vessels, jewelry, sports memorabilia, business interests, bank accounts and more.

Defendant Rothstein made his initial appearance in federal court this morning before U.S. Magistrate Judge Robin Rosenbaum. He was ordered detained pending trial. If convicted, he faces a total maximum statutory term of imprisonment of 100 years (20 years on each count).

According to the information, from around 2005 through November 2009, Rothstein engaged in a pattern of racketeering activity through his law firm, Rothstein, Rosenfeldt, and Adler, P.A. (RRA), located in Ft. Lauderdale. Specifically, the information alleges that RRA was the criminal enterprise through which defendant Rothstein and others fraudulently obtained approximately $1.2 billion from investors through bogus investment and other schemes. The information alleges that defendant Rothstein and co-conspirators used RRA to fraudulently induce investors to: (1) loan money to non-existent borrowers based upon promissory notes and requests for short-term bridge loans for business financing; and (2) invest funds based upon anticipated pay-outs from purported confidential civil settlement agreements.

As alleged in the information, in the loan scheme, defendant Rothstein and other co-conspirators solicited investors to loan money to purported RRA clients through promissory notes and short-term bridge loans. Defendant Rothstein falsely represented to the investors that the purported clients were willing to pay high rates of return on these loans. In the settlement agreement scheme, Rothstein and other co-conspirators allegedly solicited clients to invest in purported civil case settlement funds. Rothstein and his co-conspirators falsely told investors that these settlements ranged in amounts from hundreds of thousands to millions of dollars. Rothstein falsely represented to investors that these settlements could be purchased at a discount and would be repaid over time to the investors at full face value. In addition, investors were told that these funds would be held in the trust account of RRA. In both instances, the information alleges that the purported investment vehicles never existed, but were part of an elaborate Ponzi scheme in which new investors’ money was used to repay money owed to earlier investors.

To execute this four-year fraud scheme, Rothstein and his co-conspirators allegedly used multiple bank accounts at TD Bank, N.A., Gibraltar Private Bank and Trust, and other financial institutions to deposit and launder investors’ money. As well, to perpetuate and conceal the fraud, Rothstein and his co-conspirators created and caused the creation of false bank documents, false on-line bank account information, and false settlement agreements and promissory notes, which were shown to investors as proof that the settlement and loan monies existed. In fact, however, there were no settlement funds or loan clients and the bank accounts only contained “Ponzi” scheme funds.

To further fund the Ponzi scheme, defendant Rothstein and other co-conspirators allegedly defrauded clients of RRA in a civil suit initiated by RRA on their behalf as plaintiffs. Without the clients’ knowledge, RRA settled the lawsuit in favor of the defendant, thereby obligating the clients to pay $500,000 to the defendant in the civil lawsuit. To perpetuate and conceal the fraud, defendant Rothstein and other co-conspirators created a false federal court order, purportedly signed by a Federal District Court Judge, stating that the clients had won the lawsuit and were owed a judgment of approximately $23 million. The false court order also stated that the defendant in the civil suit had transferred the funds to the Cayman Islands to avoid paying the judgment. Defendant Rothstein and other co-conspirators falsely advised the clients that to recover those funds, the clients were required to post bonds. In this way, defendant Rothstein caused the clients to wire transfer approximately $57 million to a trust account he controlled, purportedly to satisfy the bonds.

According to the information, defendant Rothstein and other co-conspirators used the funds obtained through the Ponzi scheme for their own benefit. This included, for example, using the money to fund and operate RRA, to make contributions to federal, state, and local political candidates, and generous donations to public and private charitable institutions. The money was also used to pay for lavish gifts, including exotic cars, jewelry, boats, cash and bonuses to individuals and members of RRA, to hire local police officers to provide security, and to provide gratuities to high ranking members of police agencies. In addition, the money was used to purchase controlling interests in restaurants and other businesses, and to socialize with politicians and sports figures. According to the information, these expenditures were calculated to enhance defendant Rothstein’s reputation and ability to solicit potential investors in the Ponzi scheme, provide an air of legitimacy and credibility to RRA, engender loyalty, and deflect law enforcement scrutiny.

Acting U.S. Attorney Jeffrey H. Sloman stated, “Attorneys, like elected officials, hold a special position of trust in our society, and owe a corresponding duty to deal honestly with their clients and to promote their clients’ best interests. This attorney breached that duty and stole approximately $1.2 billion from clients and investors. He spent his clients’ money on real estate, cars, yachts, politics, and philanthropy, all to create the illusion that he, his law firm, and his schemes were hugely successful. Now, the mansions, Ferraris, yachts, the law firm, and his friends are gone. He sought to buy power and influence at the expense of his clients, and instead has potentially bought himself a lengthy prison sentence.”

“Scott Rothstein appeared to be a charismatic, reputable attorney one could trust to invest one’s money and make a sizeable profit. We now know it was all smoke and mirrors. Rothstein used investors’ monies to pay for his extravagant lifestyle,” said John V. Gillies, Special Agent in Charge of the Miami Office of the FBI. “The FBI and its partners will aggressively investigate people who swindle money from others, whether it involves more than a billion dollars or hundreds of thousands of dollars.”

IRS Special Agent in Charge Daniel W. Auer stated, “We will continue to move forward with this investigation, wherever it leads, and we will bring to justice those who defrauded the American public and members of our community out of their hard-earned money.”

An information is only an accusation and a defendant is presumed innocent unless and until proven guilty.

Mr. Sloman commended the investigative efforts of the FBI and the IRS in connection with this investigation and thanked the Department of Justice’s Organized Crime and Racketeering Section for their assistance. Mr. Sloman also noted the cooperative efforts of the Securities and Exchange Commission, Miami Regional Office. The case is being prosecuted by Assistant U.S. Attorneys Lawrence LaVecchio, Paul F. Schwartz, Jeffrey N. Kaplan and Alison Lehr.


Tags: document, criminal investigation, investigate people,


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